Since the market corrected in 2022, late-stage funding rounds have been few and far between. It’s been hard to predict what is still attractive to investors in the later stages of the venture market or what any of the existing “unicorns” are worth today. The secondary market therefore gives us some valuable context as to how investors are thinking about valuing companies.
The secondary market wasn’t immune to market conditions, though. Investment volume in this space has ebbed and flowed since the market correction, albeit less dramatically than on the primary side. If the startup IPO window reopens in 2024, as many are predicting, the secondary market will likely start to return to normalcy.
But how are investors in the secondary venture market thinking about the market now? To find out, TechCrunch+ surveyed five venture secondaries investors, and they said that there are many aspects of the current venture secondary market worth getting excited about.
John Zic, the founding partner at EQUIAM, for one, sees extreme discounts even for shares of companies that are maintaining attractive growth and financial trajectories. “We’re seeing attractive opportunities in many sectors, particularly in fintech, cybersecurity and marketing tech,” Zic said. “A number of firms within these sectors have continued to deliver on their financial targets throughout the same period.”
Other investors also said they are using this time to bolster their equity positions in existing portfolio companies.
“We are doing extensive follow-on [investments] in all performing companies in our portfolio,” said Michael Szalontay, the co-founder of Flashpoint. “It’s a great time to buy, especially with a discount [on] a secondary basis. The major driver of our decision is growth, profitability and also the length of runway of each portfolio company.”
Everyone agreed that prices for these company stakes have come down considerably and that valuations likely haven’t reached the nadir quite yet. There wasn’t a consensus on how close valuations are to the bottom, though: While Szalontay said the positive signaling from the Fed regarding interest rates could be considered a sign that we must be close to the bottom, others didn’t necessarily agree.
Read on to find out what sectors investors think are too hyped in the secondaries market, why some investors aren’t sure primary VCs should rush back into the space if things open up next year, and why LPs aren’t actually as hungry for liquidity as you’d think.
We spoke with:
John Zic, founding partner, EQUIAM
Where do you see attractive opportunities in venture secondaries currently?
We’re seeing attractive opportunities in many sectors, particularly in fintech, cybersecurity and marketing tech. Amidst the broader tech slowdown since the beginning of 2022, these sectors experienced even more acute valuation downturns. However, a number of firms within these sectors have continued to deliver on their financial targets throughout the same period.
Have these opportunities changed since the heights of 2021?
By the end of 2021, almost every subsector of the tech market was overvalued (on a historical basis), so I wouldn’t use the word “attractive” to describe any particular pockets of the market.
From a deal flow perspective, there was significant secondary deal flow in blockchain/cryptocurrency firms as the final act of the crypto bull market played out. As you can imagine, deal flow in these companies has ground to a near total halt over the past 2 years.